) posted first quarter 2012 earnings of $1.23 per share, in line
with the Zacks Consensus Estimate. Reported earnings were 7% higher
than the year-ago level of $1.15 per share.
However, excluding the unfavorable currency impact of one cent
in the reported quarter, earnings grew 8.0% year over year. The
year-over-year earnings growth was driven by higher comparable
store sales across all regions.
The company reported a 7% rise in revenues to $6.5 billion
during the quarter and was in line with the Zacks Consensus
Estimate. Excluding the negative impact of foreign currency
translation, revenues grew 8.0% year over year.
Revenues from company-operated restaurants rose 7% to $4.4
billion while the same from franchise-operated restaurants jumped
8% to $2.1 billion. Total operating income grew 8% to $2.0
McDonald's global comparable sales maintained its growth
momentum with healthy margins and benefited from an extra day of
operation due to leap year in the quarter. Global comparable store
sales climbed 7.3% during the quarter with United States
contributing the maximum growth of 8.9%. The Asia/Pacific, Middle
East and Africa (APMEA) region recorded comps growth of 5.5% while
the Europe region registered an upside of 5.0%.
Product innovation, along with strong customer demand for
Chicken McBites, core offerings like Filet-O-Fish, breakfast menu,
McCafe beverage line-up as well as everyday value options bolstered
U.S. comps and led to a 10% growth in operating income.
Additionally, the upside in comps was driven by restaurant
refurbishments and mild weather condition.
In Europe, operating income grew 4% (8% in constant currency),
despite the ongoing negative macro headlines in the region and
inclement winter in certain regions in February. The growth was
backed by stronger performance in the U.K. and Russia and
reasonable performance in France and Germany. Locally relevant menu
choices, sustained focus on multiple-tier menu offerings and a
restaurant reimaging program continued to drive market share
In APMEA, operating income jumped 10% (7% in constant currency),
driven by strong performance in Japan, Australia and China and
continued focus on daypart value options, variety in menu as well
as locally relevant items.
Company-operated expenses and franchised restaurant occupancy
expenses saw a spike of 7% and 6%, respectively and selling,
general and administrative expenses also increased 5% from the
In the first quarter of 2012, McDonald's returned $1.5 billion
to its shareholders through share repurchases and dividend
The company expects the positive trend to continue in 2012 and
global comparable sales for April are estimated at 4%.
The Oak Brook, Illinois-based company continues to drive
same-store sales while maintaining healthy margins. We believe that
revenues will grow through menu innovation, unit expansion and
strong comps momentum over the next few quarters.
Based on a strong balance sheet and consistent earnings, the
stock provides relative safety and moderate growth prospects due to
its exposure to the fast-growing international markets. Moreover,
the franchising strategy that is predominant in McDonald's business
model helps drive steady cash flow streams, solid margins and
McDonald's has efficiently endured the recent economic turmoil
in Europe. Despite the implementation of austerity measures, there
were no signs of drastic slowdown.
On the flip side, increased commodity pressures as well as wages
in the US, can lower the company's margins. Moreover, stiff
competition from other quick-service restaurant operators,
macroeconomic factors influencing consumer spending patterns still
remain areas of concern.
The company also recently announced the retirement of present
Chief Executive Officer (
) Jim Skinner. Effective July 1, 2012, the current Chief Operating
) Thompson will serve as the CEO of McDonald's and subsequently Tim
Fenton the President of McDonald's Asia, Pacific, Middle East and
Africa (APMEA) will hold the office of COO. We expect
the transition to be smooth as both the promotees have long been
associated with the company.
Consequently, the company has a Zacks #3 Rank (short-term Hold
rating). We also reiterate our long-term Neutral
One of McDonald's primary competitors,
Yum! Brands Inc.
), recently reported first quarter 2012 adjusted earnings of 76
cents per share, which beat the Zacks Consensus Estimate of 73
cents. Earnings increased 21% year over year mainly on the
back of outperformance at its China division and other emerging
MCDONALDS CORP (
): Free Stock Analysis Report
YUM! BRANDS INC (
): Free Stock Analysis Report
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